Cash On Hand Increases, Total Cash Balances Fall

The only category that saw an increase in dollar terms from the previous quarter was cash on hand, up 8.2%, or $2.0 billion. In total, cash balances fell to $131.0 billion during the year, down $23.0 billion or 15.0% since last quarter. Securities balances also shrank, contracting $13.1 billion – or 2.9% – since September to $440.1 billion at year-end. Aside from the contraction, the industry's investment portfolio composition was little changed from the previous quarter. CFOs kept most funds in government and federal agency securities, comprising 58.5% of total investments at year-end 2022, 1.7 percentage points higher than in September. The growing proportion of securities in the portfolio is occurring due to a relatively larger decline in cash balances. While it remains the largest cash-holding partner for credit union investors, cash held at the federal reserve fell 21.2% from last quarter, the largest percentage decline across all investment categories. Until fixed income security prices rebound, cash will continue to be drawn down as decreases in the value of investment securities are leading credit unions to hold them to avoid realizing losses.

Industry Yield Reaches 1.63%

The average yield on investments increased 25 basis points quarter-over-quarter to 1.63%. Although still far from pre-pandemic investment returns, this was the first time on record that yields rose by over 20 basis points in each of the last three quarters, reflecting the unique dynamics at present. The surge in yield in the past three quarters comes as securities portfolios reprice to rapid rate increases by the Fed. Additionally, credit unions are converting billions of low-yielding cash into higher-yielding loans, which bolsters the average yield of the investment portfolio through the decline of its lowest yielding segment. High interest rates can benefit credit unions through additional short-term revenue. For instance, in the fourth quarter alone, cooperatives received over $3.4 billion in income from investments, a 17.9% increase compared to the third quarter despite a significantly smaller overall portfolio of investment assets. However, with rising rates come falling bond prices, which hurt credit union available-for-sale securities through unrealized losses. 2022 ended with $38.0 billion in unrealized losses, leaving many credit union portfolio managers unwilling or unable to convert most of these securities into more liquid funds and realize the loss.

Instant Insights /

Q4 Investment Trends: Liquidity Pressures Lead to Decline in Investments

Related Stories

Recommended For You